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Investing: Coping with Taxes
2017 Personal tax planning strategies
Personal tax planning strategies
Organizing important tax paperwork can help make the annual tax filing process run smoothly. But, taxes are about more than meeting a deadline. Year-round tax planning can help investors to manage their short-term tax liability, and stay on track to meet longer-term financial goals.
Tax Highlights
Annual gift tax exclusion1 $14,000
AGI phase out For itemized deductions and personal exemptions: $261,500 ($313,800 for couples)
Net investment income tax 3.8% on net investment income (interest, capital gains, dividends, income from non-qualified annuities): taxpayers with over $200,000 MAGI ($250,000 for couples)
Additional Medicare payroll tax Additional .9% of salary for taxpayers earning above $200,000 ($250,000 for couples)
Highest marginal tax rates Ordinary income: 39.6%
Capital gains: 20%
20% rate applies to long-term capital gains and qualified dividends if taxable income exceeds $418,400 ($470,700 for couples)
AMT tax2 Top AMT rate: 28%
Typically applies to a higher taxable income base
Income Thresholds At-a-Glance
Five Tax Savvy Strategies for 2017
Consider options that can help to generate tax-free income.
Higher income taxpayers subject to the highest marginal tax rate and the High Income Medicare surtax of 3.8% may be seeking to lower their tax bill through sources that generate tax fee income. Investments such as municipal bonds provide attractive tax equivalent yield (the yield an investor would require from a taxable bond), which increases for those in higher tax brackets.
Explore strategies to reduce taxable income.
Certain planning strategies, like maximizing contributions to a retirement plan or FSA and maximizing eligible deductions, can help to prevent an investor from reaching income levels that would necessitate paying more in taxes.
Rebalance portfolios using cash flow.
When portfolios are rebalanced using the proceeds from the sale of existing investments, taxable gains may be realized. Instead, consider using dividends and interest earned within the account as the source of funds to rebalance.
Limit taxable events within a portfolio.
Review taxable investments and consider options like tax-efficient mutual funds, that strive to limit taxable events.
Respond to life changes.
It is a wise practice for investors to review account beneficiaries and estate plans regularly, and tax filing season can serve as a good reminder. Certain life events come with big tax implications and may require updates to financial accounts. Conducting a review of estate plans after life events can help to keep financial strategies aligned with an investor's individual family needs and create opportunity to re-examine portfolio against current tax provisions.
Don't go it alone
Making adjustments to an overall financial plan or investment portfolio with the sole intent to minimize taxes may not be optimal given the necessary focus on longer-term financial goals. Taxpayers should consult with their financial professional and tax advisor to review individual circumstances before making any tax-related adjustments to their financial plan or portfolio.
1. These annual amounts are not counted toward the $5,490,000 lifetime gift tax exemption.
2. Modified Adjusted Gross Income (MAGI) is your Adjusted Gross Income (AGI) with certain adjustments.
3. You may be subject to AMT if your taxable income, combined with adjustments and tax–preferences items, exceeds the applicable AMT threshold.
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© 2020 New York Life Investment Management LLC. All rights reserved.
How Barron's Ranks the Fund Families: To qualify for the Barron's Fund Survey, a fund family must have at least three funds in Lipper's general equity category, one in world equity, one mixed-asset fund (such as a balanced or target-date fund), two taxable-bond funds, and one national tax-exempt bond fund. Fund loads and 12b-1 fees aren't included in the calculation of returns because the aim is to measure the manager's skill.
Each fund's return is measured against all funds in its Lipper category, resulting in a percentile ranking of 100 being the highest and one the lowest. This result is then weighted by asset size, relative to the fund family's other assets in its general classification. If a family's biggest funds do well, that boosts its overall showing; poor performance in its biggest funds hurts a firm's ranking. Finally, the score is multiplied by the general classification weightings as determined by the entire Lipper universe of funds.
The category weightings for the one-year results in 2018 were general equity, 34.8%; mixed asset, 21.3%; world equity, 17.1%; taxable bond, 22.4%; and tax-exempt bond, 4.4%. The category weightings for the five-year results in 2018 were general equity, 35.9%; mixed asset, 19.7%; world equity, 17.3%; taxable bond, 22.5%; and tax-exempt bond, 4.5%. For the 10-year list, they were general equity, 37.1%; mixed asset, 20%, world equity, 16.7%; taxable bond, 21.2%; and tax-exempt bond, 4.9%. Ranking data is from Lipper.
Source: Barron's, 3/8/19. Overall, MainStay Funds ranked number 2 for the one-year period, 21 for the five-year period, and 31 for the 10-year period ended December 31, 2018, out of 57 fund families. Past performance is no guarantee of future results, which will vary. For the most recent MainStay Funds performance, please visit our web site at mainstayinvestments.com.
All mutual funds are subject to market risk and will fluctuate in value. Foreign securities may be subject to greater risks than U.S. investments, including currency fluctuations, less liquid trading markets, greater price volatility, political and economic instability, less publicly available information, and changes in tax or currency laws or monetary policy. Funds that invest in bonds are subject to interest-rate risk and can lose principal value when interest rates rise. Bonds are also subject to credit risk, in which the bond issuer may fail to pay interest and principal in a timely manner, or that negative perception of the issuer's ability to make such payments may cause the price of that bond to decline.
Past performance is no guarantee of future results, which will vary. For the most recent MainStay Funds performance, please visit our web site at nylinvestments.com/funds. All mutual funds are subject to market risk and will fluctuate in value. Class I shares are generally available only to corporate and institutional investors.
The Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and openended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive five stars, the next 22.5% receive four stars, the next 35% receive three stars, the next 22.5% receive two stars, and the bottom 10% receive one star.
"New York Life Investments" is both a service mark, and the common trade name, of the investment advisors affiliated with New York Life Insurance Company. New York Life Investments, an indirect subsidiary of New York Life Insurance Company, New York, New York 10010, provides investment advisory products and services.
The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
For more information about MainStay Funds®, call 800-624-6782 for a prospectus or summary prospectus. Investors are asked to consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The prospectus or summary prospectus contains this and other information about the investment company. Please read the prospectus or summary prospectus carefully before investing.
This mutual fund may be offered and sold only to persons in the United States.
The products and services of New York Life Investments' boutiques are not available in all jurisdictions or regions where such provision would be contrary to local laws or regulations.